Global relations could normalise if Iran nuclear deal signed

The breakthrough in negotiations between Iran and the five permanent Security Council members plus Germany, could enable Iran to reach political and economic “break-out”, allow Tehran to rejoin the international community and revive its ailing economy if the final, comprehensive agreement is reached by June 30th.

Protracted dialogue between the six powers and Iran has already ended the political ostracism Tehran experienced since the 1979 overthrow of the shah. US-Iranian relations have dramatically changed. The US is not regarded by the current Iranian government headed by Hassan Rouhani and mainstream Iranians as the "great Satan", while the Obama administration is prepared to do a deal with Iran and 59 per cent of US citizens favour such an agreement and only 31 per cent oppose.

Since the US has been the most hostile to Iran of the world powers, an easing of its relationship with Iran could produce openings to Europe as well as Asia although Saudi Arabia and the Gulf states, which consider Iran a regional rival for political influence. Israel, which sees Iran as its chief regional enemy, could remain implacably hostile.

Economic

potential

A gradual easing of the punitive sanctions regime can be expected to halt the downward slide of the Iranian economy. Iran’s gross domestic product of $366 billion is estimated to be 20 per cent smaller than it would have been without sanctions. Although the economy has begun to grow again, after a contraction in 2012-2013, unemployment remains rampant, inflation stands at 16 per cent, some banks are faltering and corruption, especially among sanctions-busting operators, is widespread. Economic benefits for Iranians would strengthen support for the “moderates” in the government and weaken hardliners in parliament and the military.

Iran expects $100 billion frozen in foreign banks to be released and India to pay $9 billion and China $25 billion owing for oil to provide the wherewithal to hire foreign firms to upgrade the country’s sanction-struck oil infrastructure. Major multinationals are already lining up to participate, and Tehran has announced US firms will not be excluded.

Tehran seeks to resume exports and regain its position as the world’s second-largest exporter, after Saudi Arabia. Once Iran is permitted to export its oil freely, revenues – which have fallen by 59 per cent – will rise and can be used for development and to stimulate economic growth.

Iran’s chief customers – China, India, Japan and South Korea – which have reduced oil imports over the past few years by one-third will be able to return to their former levels of imports.

However, fearing negative repercussions and legal obstacles, international banks and insurance companies could take months, even years, to renew operations in and with Iran, stalling economic progress and efforts to renovate Iran’s oil facilities.

Financial sanctions

US president Barack Obama has made it clear he would suspend sanctions through executive action. However, unless Congress formally lifts financial sanctions, this will not happen, particularly since the Republicans are in control of both houses and not only oppose but also threaten to torpedo an agreement.

On the regional political front, a deal on Iran's nuclear programme could encourage Iran to behave like a "normal" country. It might seek a "grand bargain" that would ease tensions with neighbours who argue an Iran, unshackled by sanctions, would increase its interference in regional affairs. These fears could be countered immediately if Iran calls for a political settlement in Yemen between the Shia Houthis and Saudi-backed president Abdul Rabu Mansur Hadi, and promotes a reduction in sectarian-fuelled violence, notably by Iranian-backed Shia militias against Sunnis in Iraq.

Military co-operation

The agreement could make it easier for Tehran and Washington to co-operate and co-ordinate air power and ground forces in the military campaign against Islamic State and Jabhat al-Nusra in Iraq and Syria. Iran and the US also have shared goals in Afghanistan and have already begun co-operating on that front.

Saudi Arabia’s Sunni rulers – who wrongly blame Iran for all turmoil in the region – and their allies could try to undermine such a deal by ramping up their campaign to counter Shia Iran and its allies Syria and Iraq by boosting support for Sunni jihadi groups seeking to oust these countries’ governments. This would be seen as a very dangerous strategy by the US and western powers which fear domestic jihadi blowback from Arab world conflicts.